Economics Answers

1) Calculate the natural level of employment if the labor force is 150 million and the 

natural rate of unemployment is 5%.

1) Assume that the cost of a unit of labor (W) is $50 (the nominal wage) and a unit of labor 

produces one unit. Calculate the price per unit if mark up is :

i. 20%

ii. 40%

a) Explain fully how each of the following factors influence the determination of wages in 

the economy

i. Expected price level (Pe)

ii. Unemployment rate (u)

iii. Institutional factors such as labor laws and regulations, minimum wages and 

unemployment benefits (z)

a) With the aid of a graph, show the effect of a reduction in money supply on the aggregate 

demand and supply in the short-run

a) Discuss the link between the quantity theory and the fisher effect

b) What does the Quantity Theory of Money State?

c) Define fiat money, commodity money, and seigniorage.

a) Explain why the aggregate demand (AD) curve slopes downwards

b) Why is the aggregate supply curve vertical in the long-run?

c) What is stabilization policy?

d) Write the quantity equation and explain it critically?

e) What does the assumption of constant velocity imply?

Consider two countries in West Africa that have the same quantities of labor (L = 400) and capital 

(K = 400), and the same technology (A = 100). The economies of the countries are described by 

the following Cobb-Douglas production functions: 

Country X: Y = AK^0.3L^0.7

Country Y: Y = AK^0.7L^0.3

a) Looking at the two production functions, which country has larger production? Explain

b) In which country is the Marginal Product of Labor larger? Explain

c) In which country is the real wage larger? Explain

d) In which country is labors share of income larger? Explain

The following equations describe an economy 

C = 200 + 0.25YD

I = 150 + 0.25Y – 1000r

G = 250

T = 200

(M/P)d = 2Y – 8000r

(M/P) = 1600

a) Derive the IS curve

b) Derive the LM curve

c) Solve for equilibrium output

d) Solve for the equilibrium interest rate

e) Solve for the equilibrium values of C and I, and verify the value you obtained for Y by 

adding C, I, and G.

f) Now suppose that the money supply increases to M/P = 1,840. Solve for Y, r, C, and I, and 

summarize the effects of an expansionary monetary policy.

Let the production function be given by Q = KL with r = 2 and w = 1. [Note: (marginal product of capital) MPK = L and (marginal product of labor) MPL = K.]

a) How much K and L is employed in the efficient production of 32 units of output?

b) What is the minimum cost of producing 32 units of output?

c) Show your results graphically.

4. Let the production function be given by Q = 2K + L with r = 3 and w = 1. a) How much K and L is employed in the efficient production of 10 units of output? b) What is the minimum cost of producing 10 units of output? c) Show your results graphically. 5. Let the production function be given by Q = min{2K, L} with r = 2 and w = 1.

a) How much K and L is employed in the efficient production of 20 units of output?

b) What is the minimum cost of producing 20 units of output?

c) Show your results graphically.

6. Derive the cost function associated with the production function in questions 2. and 3. The cost function is of the general form C(Q) = xQ. What is the value of x?

Discuss what a financial system is and the key role that any financial system plays in an economy. What are the main reasons for regulating financial institutions and how do the regulators do this? 15marks